Sunday, October 26, 2014

Road maps don't define nirvana

A road map presupposes we know where we are and where we want to be and thus a GPS is a “wonder tool” – it tells us how we will get from point A to point B. And in the case of PHL, given our state of underdevelopment, indeed we need a number of industry road maps precisely for the same reason. But then comes the bigger hurdle: these road maps will not be operating in a vacuum. Overarching a set of road maps is an ecosystem. And what does that mean? I asked my Bulgarian friends 6 months after we set up our office in Manhattan what they would see that makes the place attract every conceivable enterprise. And, without exception, they said: the system works! And then I shared the story of British friends from 25 years ago that were surprised how much could be done via the telephone thus saving an errand if not an undertaking so much time – and, without exception, they said the system works.

How do we illustrate that in the PHL setting? The policy we proudly trumpeted to the world decades ago of “Filipino first” was nurtured and fed by our parochial nature and our cacique masters, and also found expression in the supposed preferred trade agreement with our colonizer, the U.S. And the fallout? It guaranteed stunting the development of local industry – and PHL's broader industrialization efforts – while reinforcing and perpetuating our oligarchic economy.

With the exception of vested interest, it was the right first few baby steps that as a young nation we needed to make, i.e., what we call today as a road map. And without vested interest human development would have been the principle behind that road map that would have evolved into a much more competitive construct over time. And we weren't ignorant of human development – because Rizal already gave us an exposition on the Age of Enlightenment, over a century ago.

Decades later, sadly, we are revising history. How? That opening PHL to the rest of the world was bad for us. In marketing parlance our concept of free enterprise was “half-pregnant.” It was neither here nor there. [A concept upon which a product is based, developed and marketed in order to win in the marketplace must be simple, sharp and crystal clear if consumers are to understand, accept and embrace it as responding to a perceived need. To put it in the context of a nation, the framers of the U.S. Constitution crafted a simple, sharp and crystal clear concept: the pursuit of life, liberty and happiness.] It was protective of our cacique masters under the guise of nationalism. And precisely because of our deficient concept-definition, we're uncertain how to give credit where credit is due. We continue to be half-hearted if not critical of the Asian tigers instead of benchmarking our efforts against theirs. Yet we know that in Singapore, the system works.

Let's bring that to the present, to our auto industry. Where are we, where do we want to be and how will we get there? Is Pinoy abilidad again lurking? Do we see China (i.e., rising costs structure) and Thailand (i.e., undermining freedom and democracy given recent political developments) beginning to show their nakedness? And thus fate must be smiling upon us? Didn't Ambassador Oscar M. Lopez say that many Japanese firms have seen that nakedness too but those companies chose Indonesia, for instance, to pour their investment monies instead of PHL?

Thus in developing a road map, the first imperative is to answer the question: why would foreign investors choose another country over PHL? Granted we're seeing an uptick in FDIs, benchmarking is a rigorous exercise no different from academic rigor. For example, we lag even Vietnam in FDI! [And our worldview remains suspect when the Central Bank makes comments like foreign investors must know that our fundamentals are strong and thus should realize the benefit of investing in PHL. But that is easy to test.]

So the first element of our definition of where we want to be is for Toyota or VW, for example, to choose PHL over our neighbors. And given AEC, we are presented a different playing field than what we’re familiar with, our local market. Thus to define where we want to be as in to reduce foreign exchange demands that come with importing car parts like we do today misses a very fundamental hurdle, i.e., to be the preferred investment destination.

There are very critical yardsticks that will measure if we are to be preferred over our neighbors: (a) will we fit the supply chain model that these auto companies are constantly fine-tuning; (b) will a PHL regional hub enhance their competitive advantage in the region; (c) will the PHL local market give them a solid foundation to reinforce (a) and (b)?

Supply chain is very crucial especially in a global enterprise and it happened to be the expertise of Tim Cook. And as they say, the rest is history, Steve Jobs chose him as successor over Jony Ive, the design master from the UK. Yet every time Jobs introduced a new Apple gadget it was all about it being an “insanely great product” – and he would go to the extent of claiming that his soul mate in designing Apple products was Jony Ive.

As far as autos are concerned, Thailand is considered the Detroit of Southeast Asia because they measure up to the above yardsticks. And so does China, with their ability to be the world's biggest car market.

Let's dig deeper and dissect the supply chain challenge: A good model to look at is Apple. Apple initially built a state-of-the-art facility in California to produce the Macs. But in a globalized world where consumers are spread across continents, Apple needed a supply chain that will deliver the benefits of economies of scale . . . rapidly . . . and . . . cost-effectively. Ergo: China is preferred over California and even Taiwan.

What do we in PHL have to offer against that model? Why would foreign investors choose PHL over our neighbors? The first consideration when developing a supply chain model is infrastructure. How many export-processing zones have we put up? But are they competitive against those of our neighbors? How about power and other utilities (i.e., phone, internet and beyond) and roads and ports, etc. and, as importantly, the requisite supporting industries like those required in ship building, for example? By that simple measure we can’t claim PHL is world-class and has competitive advantage?

And since we're not world-class from a supply-chain standpoint, how can a PHL regional hub enhance the competitive advantage of Toyota or VW? Competitive advantage simply defined is making winning a habit. What about our local market, will it provide a solid foundation for these companies’ efforts? For instance, Thailand, given GDP per person despite smaller population base than PHL, has a buying power of 1.5 to 2 times versus PHL. While Indonesia given population size net of poverty has 3 times more than PHL. In short, we should not be surprised why we are unable to attract foreign investment.

The bottom line: road maps per se don’t define nor will deliver nirvana to PHL. And we can’t keep banking on Pinoy abilidad. “It’s more fun in the Philippines” as a reflection of our mindset or our sub-optimized approach to problem-solving seems to pervade what now appear to be our policy prescriptions to our economic woes? It’s not about fate but hard work. “The events of human life unfold in a fair and just manner only when individuals and society work hard to make this happen,” from research work at the Yale Mind and Development Lab, Yale University, Does everything happen for a reason (?), Konika Banerjee and Paul Bloom, The New York Times, 19th Oct 2014.

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About Me

I started writing to columnists and newspaper editors at the end of a trip to the Philippines over Holy Week in 2008 – to echo the frustrations expressed by friends and relations that were much louder and more intense than prior trips. My first thought was: with so much talents and skills how could the country be the basket case of Asia? Are we simply too nice as a people? Since then I have kept abreast with local news and opinions.
I have been a business consultant (since 2003) focused on Eastern Europe. My principal client in Bulgaria, a consumer-products maker, was chosen by the European Business Awards in 2011 as among Europe’s best from the 15,000 companies vetted for the selection. I started my career in 1968 in human resources in the Philippines. I then joined a Fortune 500 company in 1981, working with its Manila subsidiary for seven years and later moved up to its Asian regional headquarters and finally assumed a global responsibility (in global strategy, organization and business competitiveness) until my retirement. I have likewise done consulting work in the Philippines. I live with my family in Stamford, Connecticut, USA.